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Norb Vonnegut

Norb Vonnegut

Posted: May 3, 2010 01:01 PM

Financial Reform: Who's the Fox in the Henhouse?

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From Hill to hedge funds' hired guns

Check out today's post on Politico. The author asserts that financial reform is uneven, that pending Congressional legislation has modest impact on hedge funds.

Wall Street has taken its lumps in Washington recently and Goldman Sachs has become everyone's whipping boy, but hedge funds and private equity firms have escaped relatively unscathed.

I don't get the disparity. Hedge funds, through leverage, can inflict major damage on economies. John Paulson's fund made $1 billion dollars on Abacus 2007-AC1 -- the casino bet that cost two banks a total of one billion dollars. Other hedge funds structured similar trades, like Magnetar, which profited from the collapse of subprime.

What's worse -- alleged fraud by an investment bank or unchecked profiteering by hedge funds using toxic securities?

The worst part of financial reform is that our Senators are hardly free from conflicts of interest -- ironic because conflicts of interest are at the heart of the charges against Goldman Sachs. Here's more from Politico:

  1. John Paulson held a $1,000-per-person fundraiser for Senator Chris Dodd last year. The Senator is the architect of the pending, 1400-page legislation.
  2. Senator Chuck Schumer collected $150,000 in contributions from 10 of the richest hedge fund managers.
  3. In 2009 there were at least seventy former members of Congress, lobbying Capitol Hill on behalf of the financial services industry.
In our judicial system, judges recuse themselves when there are conflicts of interest. I'd like to see the same thing in Congress. The only problem -- it's not clear the Senate could field a quorum to vote.

Norb Vonnegut


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